Trade

Written by K. William Watson, trade policy analyst with the Cato Institute’s Herbert A Stiefel Center for Trade Policy Studies. Posted with permission from Cato @ Liberty.

Do you remember the 112th Congress—the one that repeatedly almost shut down the government while still managing to raise taxes and spending? It turns out they did some interesting things with trade policy. The votes recorded in Cato’s congressional trade votes database have been counted, tabulated, and analyzed, and the results are mixed. The predictable legislative outcome was that with a Republican House and Democratic Senate, the 112th Congress furthered the bipartisan establishment trade policy of reciprocal tariff reduction and unilateral subsidy expansion.

The more interesting revelations come from looking at the voting records of individual members. Rather than simply noting whether a policy would promote or diminish free trade or would increase or decrease America’s engagement in the global economy, Cato’s Free Trade, Free Markets methodology distinguishes between barriers (like tariffs and quotas) and subsidies (like loan guarantees, tax credits, and price supports). This distinction enables us to place members within a two-dimensional matrix.

Rick Santorum, after his recent wins in Minnesota, Colorado, and Missouri; appears to be the GOP frontrunner. If you look at Santorum’s record and rhetoric, he would appear to be the best fit for the Republican Party. Indeed, it is almost hard now not to imagine a scenario where Santorum is not the nominee.

However, if the GOP decides to nominates him, it will put an end to the fiction that the GOP is a limited government party. It will also put an end to what is left of the conservative-libertarian alliance.

Santorum is the only candidate running for president who is openly hostile to libertarianism. Santorum’s record is abysmal on fiscal issues. He voted for the Medicare prescription drug entitlement, No Child Left Behind, numerous earmarks and pork barrel projects, voted against NAFTA and is generally opposed to free trade. His proposals on foreign aid have won praise from Bono, the rest of the Third World poverty pimps, and their allied Tranzi NGOs. The Sweater Vest also wants to maintain a tax code that is riddled full of deductions and loopholes rewarding selected constituencies, instead of proposing a simpler system that is fairer to all. Rick Santorum, far from being the next Reagan, appears to be a compassionate conservative in the mold of George W. Bush. Finally, Rick Santorum last summer in a speech declared war on libertarians.

In a Pennsylvania Press Club luncheon in Harrisburg last summer, Santorum declared, “I am not a libertarian, and I fight very strongly against libertarian influence within the Republican Party and the conservative movement.”

Knowing there is no legitimate case for protectionism, its proponents are now attempting to define free trade as something that it is not. Writing for Salon, David Sirota says:

Trade policy, as I’ve previously noted, often has nothing to do with what we conventionally define as “trade” — that is, it has nothing to do with the exchange of goods and services, and everything to do with using state power to solidify corporations’ supremacy over individual citizens. In that sense, the modern era’s ongoing debates over “free trade” are a corporate public relations coup — by tricking the public and the media into believing we’re debating one thing (commerce) when we’re debating something entirely different (power), the “free trade” brand casts those who raise questions about these pacts as know-nothing Luddites (who could be against commerce, right?).

Oddly, Sirota offers no further support for his claim that free trade uses “state power to slidify coporations’ suppremacy over individual citizens” nor does he even clarify precisely what it is he means. It appears as though he is content to level that charge and move on to a different subject:

…In creating direct unprotected competition between Americans and foreign workers who have no labor, wage or human rights protections, the most celebrated trade pacts of the last two decades have — quite predictably — resulted in widespread layoffs and the hollowing out of America’s middle class job base.

But not because of the reasons you may believe

Within a month of the peak of the stock market in September 1929, President Hoover began a campaign of coordination between industry and government that is still seen today. He was under the belief that falling wages would exacerbate the coming recession and that they must be held steady in order to preserve purchasing power.

Written by Simon Lester, Trade Policy Analyst for the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute.

In the context of the recently launced US-EU free trade talks (formally, the “Transatlantic Trade and Investment Partnership,” or TTIP), commentators have noted that tariffs between the US and EU are low, and thus the key part of the talks will deal with so-called regulatory barriers to trade. An article in Inside U.S. Tradeobserves: “Overall, the U.S. average tariff rate is 3.5 percent, although the average tariff rate on goods that the EU actually shipped to the U.S. last year was even lower, at 1.2 percent, … .”

But these average figures mask some significant “tariff peaks.” There are lots of individual tariff rates, so if many are low or zero, that makes the average figure fairly low; nonetheless, there are plenty of high tariffs still out there. The same article points out some US and EU tariff rates that may come up during the negotiations. Here is the US:

U.S. light trucks tariff of 25 percent; a tariff on wool sweaters of 16 percent; a tariff on sardines of 20 percent; a tariff on tuna of 35 percent; and a tariff on leather at 20 percent

Written by K. William Watson, a trade policy analyst for the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute. It is cross-posted with permission from Cato @ Liberty.

With all the China bashing we’re hearing on the campaign trail and the arguments from both candidates that free trade agreements are good only because they increase manufacturing exports, one might reasonably deduce that free trade advocacy is a thing of the past and a losing position with the American people. If this is true, many in Congress haven’t gotten the memo. The House and Senate are home to many free traders. You can see for yourself by visiting Cato’s interactive trade votes database, Free Trade, Free Markets: Rating the Congress.

The Cato Institute has been keeping track of how Congress votes on trade issues since 1997. At the website you can see reports summarizing the votes for each congressional term. There is no report for last term (2009–2010) because Congress was too busy dealing with healthcare and Keynesian stimulus to take on trade issues, but the last two years have seen votes on free trade agreements, Chinese currency and subsidies, export finance, and sugar price controls. We’ll have a report after the current term ends on what all these votes mean for the freedom of Americans to interact with foreigners and on what to expect in the next two years.

Speaking to supporters in Cincinnati, Mr Obama said: “Today, my administration is launching new action against China - this one against illegal subsidies that encourage companies to ship auto-parts manufacturing jobs overseas.

“Those subsidies directly harm working men and women on the assembly line in Ohio and Michigan and across the Midwest. It’s not right; it’s against the rules; and we will not let it stand.”[…]In the latest wrangle, the Obama administration claims that China’s “illegal subsidies” in the car sector totalled $1bn (£600m) between 2009-11.

The US president believes that the subsidies encourage America to outsource car and car-parts production to China, with these products then exported into the US or other nations.

“Export subsidies are prohibited under WTO rules because they are unfair and severely distort international trade,” said US trade representative Ron Kirk in a statement.

Let that sink in for a moment. The Obama Administration, which supports the heavily-subsidized Chevy Volt, is complaining about China subsidizing auto parts? The hypocrisy knows no bounds.

Written by Simon Lester, a trade policy analyst at the Cato Institute. Posted with permission from Cato @ Liberty.

In the past, a “trade war” was something to be avoided at all costs. It meant a spiral of protectionist measures: one country would adopt some form of protectionism, and its trading partners would respond in kind. The impact on the global economy could be disastrous.

Today, by contrast, trade conflict often involves a tit-for-tat litigation process in which countries challenge each other’s trade barriers before the World Trade Organization. The result can actually be beneficial, as successful complaints usually lead to the removal of trade restrictions. As a result, the “trade wars” of today may lead to less protectionism rather than more.

Recent developments related to Argentina’s trade policy provide a good illustration. Last year, Argentina decided to take a much more interventionist and protectionist approach to trade policy, with a goal of encouraging domestic production. To take an example provide by The Economist, through the use of import licensing restrictions, Argentina effectively required foreign mobile phone makers to assemble and package phones in Argentina rather than exporting them for direct sale there.

Other countries took notice of Argentina’s measures, and a number of them spoke up at a WTO meeting in March of this year. But no formal complaint was filed at that time.

The United States government has taken China to the World Trade Organization. They’re complaining about auto import tariffs China has imposed for a couple of years.

The United States launched a trade complaint Thursday against China at the World Trade Organization, accusing Beijing of unfairly imposing duties on more than $3 billion in exports of American-produced automobiles.The announcement came as President Barack Obama hit the campaign trail in the battleground state of Ohio, where automakers have been affected by the tariffs imposed in December. It underscored how America’s trade relations with rising economic power China could color the political debate ahead of the November presidential election.Under WTO rules, countries are allowed to impose punitive tariffs to offset damage from both subsidies and dumping — selling products at below market value — but the U.S. contends that in this and other cases, China has used those remedy measures in an unfair and retaliatory way to hurt American exporters.

Obviously this complaint being made public, while Obama is in a campaign trip throughout the Rust Belt, is pure coincidence I’m sure. Which auto manufacturers are the most harmed by these tariffs:

On Tuesday, former Massachusetts Gov. Mitt Romney appeared to ratchet up the rhetoric beyond even that one-liner, suggesting that there was a basis for ending U.S. trade relations with China altogether.

“I’m not sure, whether the intellectual property you have is regularly being stolen by competition around the world, but in the case of China, for instance, we’ve sat idly by as they have stolen — year after year — intellectual property: Designs, patents and so forth,” Romney told a crowd member at a Mosiac Technology Business Roundtable in Salem, N.H. “And I don’t see how you can have a trade relationship, on an open basis, with another nation if they’re stealing a large part of what it is you sell.”